Amid A Challenging Mobile Transition, Zynga’s Revenues Decline 18% To $264M

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Zynga’s revenues for the first quarter of 2013 declined 18% year-over-year to $264 million as the company is in the midst of doing a big pivot onto mobile platforms. The company swung to a profit from a year ago though, with net income of $4 million. Last year, during the same quarter, Zynga earned $321 million in revenue.

Analysts had estimated on average that the company would pull in $209.8 million in revenue and lose 4 cents a share. So this is an earnings beat — thanks to FarmVille 2. But shares are down 9.6 percent in after-hours trading.

“2013 remains a transition year,” said CEO Mark Pincus on the earnings call. “We continue to expect non-linear, uneven results and a significant decline in second quarter bookings.” He said the company had to kill two unreleased games and that they would sunset about four others including The Ville, Empires & Allies, Zynga City on Tencent and Dream Zoo.

“These were hard decisions for us, but we’re confident they were the right ones,” Pincus said on the call.

The issue for Zynga is that the environment on the Facebook platform remains challenging and the company has yet to prove that it has the same historic dominance on mobile platforms. Zynga said mobile platforms represented 22 percent of bookings during the quarter, which is about the same as it was last quarter. One contributing factor is that Zynga hasn’t really launched that many titles on mobile platforms this part quarter, with the exception of “What’s The Phrase.” Draw Something 2 is about to come out for global launch and Zynga says it may see a rebound in mobile revenue in the second half of this year with a slate of new titles.

The company’s daily active users fell to 52 million this past quarter, down from 65 million during the same period last year. It also saw 253 million monthly active users, down 13 percent year-over-year from 292 million users.

“It’s not about keeping score of the quarter. It’s about the long game,” said Zynga chief financial office Mark Vranesh on the call.

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One positive thing worth pointing out: it looks like the tough cuts and studio closures of last year are largely over, and Zynga’s shares have climbed 35 percent since the beginning of the year.

The company is now looking ahead to a couple potential growth areas: 1) mobile games 2) midcore games 3) third-party publishing and 4) real-money gaming.

On mobile platforms, which is the huge growth area for the industry, Zynga has a couple of reliable franchises like Poker, which is currently ranked #15 on the top-grossing charts in the U.S.

“We still believe Poker represents one of our best long-term opportunities,” said COO David Ko on the earnings call.

It also has the “With Friends” line-up which has top-grosser Scramble With Friends and the newly-launched Running With Friends, which could be compared to Imangi’s Temple Run or Kiloo’s Subway Surfers. They’ve also pumped up the release of the Draw Something sequel too.

But Zynga’s performance has paled in comparison to old rivals like the U.K.’s King or Finland’s Supercell, which is the industry’s darling of the moment. With just 100 employees, that Helsinki-based company made nearly as much as Zynga did in the same quarter with $179 million in revenue only on iOS.

On the real-money gaming side, Zynga only recently made its debut after the quarter ended with the launch of two titles in the U.K. market. So we won’t see the performance of any of those titles until the next earnings announcement. The company said it expects “modest” revenue from these games this year, and doesn’t expect to see “significant” real-money gaming revenue for the full year. They do plan to launch more real-money titles on Facebook and mobile platforms by year-end.

In mid-core titles, Zynga recently launched War of the Fallen, a card battling game that followed on Ayakashi: Ghost Guild. Then they’ll follow up with an action RPG title later in this quarter.

Although Zynga’s historic area of strength — the Facebook platform — remained tough, it did have one bright spot.

In the earnings release, Pincus pointed to the company’s big FarmVille sequel, which was launched seven months ago:

We are encouraged by the strong execution from our teams and the breakout hit performance of FarmVille 2, which captures the imagination of nearly 40 million players every month. 2013 will continue to be a transition year as we face the challenging environment on the web and invest in developing the leading franchises and network across web and mobile platforms and offer our 253 million monthly players a connected experience that can follow them from work to school to home and anywhere in between.

Apparently, this single title is what helped the company beat earnings estimates slightly.